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Canadians need to save 11 times their salary by retirement

There are many “rules of thumb” in the world of money. One used to be that your rent should equal one quarter of your monthly take home pay. Another used to be that your house should be worth twice your annual salary.

According to research by Fidelity in the US, reported by Market Watch, people should have saved a year’s salary for retirement by age 30.

By age 40, Canadians should have saved three times their salary for retirement. And by “average retirement age,” usually early 60s, Canucks need to have saved 11 times their salary, the article says.

The article tempers the alarm it raises with these high figures by pointing out that they are just guidelines. “Everyone faces different circumstances, and therefore need varying amounts of money by the time they retire,” the article reports. “Some people may choose to rent or pay off a mortgage, while others may not have any housing obligations except for taxes and utilities. Some retirees may want to take more vacations, or have more medical bills to pay, or have intentions with their money, such as an inheritance for their children and grandchildren.”

And don’t forget that the contributions you make towards CPP and a portion of your income tax are retirement savings payments, since you will get a CPP pension one day and likely Old Age Security as well.

That said, Statistics Canada, via the CBC, reports that the average Canadian saves only four per cent of his or her income, and that there was a whopping $683.6 billion in unused RRSP room as of the end of 2011. The article notes that someone saving $2,000 a year from age 25 on would have $301,478 by age 65. That might not be 11 times his or her salary, but it is a pretty good number.

Retirement savings, like losing weight or getting out of debt, is overwhelming when you first set out to do it. But if you start small, and chip away over the years at your target, you will be surprised to see how far you’ve come when the time comes to log out of work for the last time.

If you’re not fortunate enough to have a pension plan at work – and if you do, and have extra contribution room each year – the Saskatchewan Pension Plan is a great way to build your retirement savings. You can start small, or can contribute up to $6,200 per year. You can transfer savings in from other retirement savings vehicles. The money is invested professionally at a very low fee, and when you retire, you’ll have many options for turning savings into a lifetime income stream. Check it out today.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

 

Canadians enter the workforce with an average of nearly $27,000 in student loan debt. Such high amounts of debt typically take 10 years to repay, which means many delay saving for traditional life goals like home ownership, starting a family or retirement.

“So often it’s a choice between paying down student debt or making contributions to a retirement plan, but there is only so much wallet share available and student loans have to be paid off first, “ says Great-West Life Senior VP of Group Customer Experience and Marketing Brad Fedorchuk.

That’s why in January 2018 GWL is piloting a first in Canada — a voluntary retirement and savings program with select invited employers in their distribution network and their eligible employees. As participating members pay down their Canadian and provincial government student  loans, they will receive an employer-matched contribution to their group retirement savings plan. The goal of the program is to allow members to save for retirement while they focus on paying down their student debt.

Employees will send documentation verifying their outstanding student loan to GWL plus quarterly statements confirming payments have been made. “Once we have verification of student debt repayment, we’ll create a report for the employer so employer matching RRSP payments can be made, Fedorchuk says.

The level of matching (i.e. dollar for dollar; 50 cents for every dollar) and any annual cap on matching will be based on the provisions of the existing group RRSP program. He continues, “Details still have to be worked out, but we envisage this program as a self-selected alternative to group RRSP matching for employees paying down student loans.”

With Americans owing over $1.45 trillion in student loan debt, spread out among about 44 million borrowers, student debt repayment is emerging as one of the most popular new employee benefits. Some U.S. employers also assist students to pay off loans faster by helping them to consolidate or refinance their loans at a lower interest rate.

Although only 4% of U.S. companies offered student debt pay as down a benefit at the end of 2016, according to the Society for Human Resource Management, and employees are typically responsible for income taxes on the assistance received, it is expected that this percentage will grow. Fidelity, PwC, Aetna, Penguin Random House, Nvidia, First Republic and Staples are notable examples of early adopters, Forbes reports.

One advantage of GWL’s Canadian program is that by matching student debt repayments in the group RRSP, contributions are tax-sheltered. Also, subject to any limitations in the group RRSP plan design, employees can withdraw funds to participate in the Home Buyers’ Plan to buy or build a qualifying home for themselves or for a related person with a disability.

Fedorchuk acknowledges that it may be a challenge to encourage students to continue saving in the group RRSP when their student loans are paid off. Nevertheless, he believes that the pool of money accumulated in their RRSPs that they would not have had absent this program will be compelling. “Hopefully we can incent employees to continue contributing and receiving the match instead of shifting their monthly payments into ‘fun money,’ he says.

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Written by Sheryl Smolkin
	Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.